INDIAN INSTITUTE OF MANAGEMENT, CALCUTTA

CFRA PROJECT:
FINANCIAL ANALYSIS OF ULTRATECH CEMENTS

Submitted by
Group 10
Ashwin K.P. 0090/55
Adithya S Bhat 0080/55
Sitakanta Mohanty 0134/55
Rizwan Deshmukh 0122/55
S Radhika 0124/55

Under the Guidance of

Dr. Sudhir S. Jaiswall
Professor,
Indian Institute of Management, Calcutta

in partial fulfillment for the course completion

of
Corporate Financial Reporting and Analysis

2018-19
 Corporate Financial Reporting and Analysis Project Summary

Financial Analysis
Executive Summary

Industry & Economy in 2018 About Ultratech

The cement industry is an integral part of the
construction sector and grew at an increased 6%
in 2017 with the largest share of demand coming
from housing (66%), infrastructure(18%), and
commercial(16%) sectors with total capacity of
465 million tonnes. Production is at 301 MT for
domestic demand and ~4 MT for exports.
Demand is likely to grow at 4-5% in FY 2019
due to support from government,
implementation of GST and pick-up in
affordable housing.
UltraTech Cement Ltd. is the largest manufacturer
of grey & white cement & RMC in India with
installed capacity of 96.5 MTPA and 50 plants &
terminals with operations spanning across India,
UAE, Bahrain, Bangladesh & Sri Lanka with four
major subsidiaries. It has a market cap of ₹ 326635
crore and reported revenues over ₹ 30000 crore in
2017-18. Ultratech completed acquisitions of the
21.2 mtpa capacity cement plants of Jaiprakash
Associates Limited and commissioned additional
capacity of over 4.25 MTPA.

Highlights from Account statements

A large increase (16,689 Cr) in assets, and non-current KEY HIGHLIGHTS
liabilities (11,858 Cr) is observed in 2018 due to
acquisitions of JAL and JCCL. However, repayment of The major development of
800 Cr debt stemmed the increase in liabilities the year was the successful
completion of the acquisition
There is YoY increase in operating revenue due to higher sales volume and
of the 21.2 mtpa capacity
increase in cement prices. Government grants (304 Cr) increased other
cement plants of Jaiprakash
income by 9% while acquisitions resulted in doubling of interest costs due
to debt acquired, along with one-off stamp duty expense (226 Cr) decreasing Associates Limited
YoY Net Profit The company also
There is a fall in operating cash flow due to inefficient sales projections commissioned Greenfield
which led to an increase in inventories of ₹ 876.5 Cr as compared to ₹ - projects for 4 mtpa across 4
52.62 Cr. in 2017 along with an increase in trade receivables by ₹ 427.7 Cr. different Indian states

Repayment of borrowings of JAL and JCCL of ₹ 10,686 Cr and Non-current borrowings of ₹ 6160 Cr led to
financing cash outflows. However, the company raised ₹ 15,772 Cr. for the acquisitions to maintain liquidity and
cash reserves to maintain solvency

Ultratech raised ₹ 5574 Cr. and ₹ 2031 Cr. by sale of investments and redemption in bank deposits in order to
generate cash required for the acquisition

Group 10

Trend Analysis
Current Assets ratio fell (1900 Cr. dec) largely due to redemption
of Investments in Mutual Funds and Cash Balance from Banks
while non-Current assets increased due to PPE increase of ₹
11320 Cr. from acquired assets
Net sales and COGS have both increased by close to 12%, but
operating Expenses and other expenses have both increased by
16% and 25% respectively, resulting in a lower 13% growth in
EBIT
• However, finance costs have increased by 107%, causing a
3% YoY drop in EBT. Though tax expenses have
decreased by 7%, the effects of the expense increases have
caused a decline in PAT by 16%
Common Size
Long term liabilities have increased from
18.54% to 32.02% reflecting the mode of
funding for acquisitions. Non-current assets
have gone up from 68.24 to 80.53% reflecting
the poor inventory and asset management of
the distressed companies acquired
COGS is the largest constant contributor to
expenses at 67%, while exceptional items grew
16x mainly due to unexpected costs from
acquisitions. However their contribution is
negligible at 0.74% of sales.
An increase in finance costs, other expenses,
and tax has caused a decrease in PAT to 7.27%
from 9.67%

Profitability Ratios Efficiency/Turnover Analysis Liquidity/Solvency Ratios

A decline in profitability ratios (ROA,
ROE, ROIC, and Profit Margin declined
by 29.67%, 18.18%, 21.86% and 31.71%
respectively) can be observed due to
acquisitions of distressed companies.
Disproportionate increases in assets vis a
vis sales, large investments in greenfield
and brownfield plants, increase in
operating and finance expenses and
decrease in net profit are the causes that
can be attributed to this decline
The company has seen a marginal decrease
in its operational efficiency because of asset
and inventory additions from newly
acquired units causing a decline in Working
capital and inventory turnover by 9.42% and
5.23% respectively. This is exacerbated by a
10% increase in account receivable days.
Account payable days is higher than industry
average allowing the company to keep a low
cash cycle despite a high operating cycle
Solvency ratios have taken a hit due
to acquisition of distressed loss
making units. The current ratio and
quick ratio has decreased by 38.32%
and 47% respectively, while debt to
asset and debt to equity ratios have
increased by 34% and 71.3%
respectively due to increased use of
debt for undertaking the
acquisitions.

Analysis of Ultratech’s Competitors via Ratios

Key Ratios Analysis
Profitability ROIC is higher for both ACC and Ambuja due to lower current liabilities, while profitability is lower
for Ultratech due to low initial profitability of distressed acquisitions
Efficiency/Turnover Asset turnover, inventory turnover are lower for Ultratech wrt competitors indicating sub-optimal asset
utilization. Ultratech is able to maintain an industry standard cash cycle due to large payables’ days.
Liquidity Ratios All the ratios were similar in the 2016-17 fiscal year, but due to the large debt taken over for acquisitions,
the solvency of Ultratech declined sharply.
Market related ratio The P-E ratio is much higher for ACC and Ambuja indicating undervaluation of Ultratech share while
a lower dividend payout ratio indicates a larger proportion of retained earnings are invested by Ultratech
to aid its growth.

Financial performance Analysis : STRENGTHS

• healthy market position
The acquisition of JAL and JCCL placed Ultratech at No. 4 globally in terms of cement capacity(96.5 • great reputation in terms of credit
mtpa) with highest sales, net profit, total assets and market cap in the industry in India. However, while repayment CRISIL
competitors saw a 35% growth, its net profits fell despite growth in sales due to increase in operating costs, AAA/FAAA/Stable/CRISIL A1+
depreciation and finance costs due to acquisitions. • geographically diverse presence in
India through which Ultratech has
Overall liquidity of the company was maintained as significant cash outlays (repayment of borrowings, developed a superior operating
capital expenditure) was balanced by cash inflows (higher revenues, increase in debt, sale of mutual funds). efficiency driven by strong
However, non-sustenance of performance led to lower cash accrual and high debt. Projected sales in upcoming consumption norms, captive power
years also points towards underutilization of newly acquired capacity. Economies of scale, efficiency capabilities and efficient logistics.
optimisation, and increase in construction demand may help maintain market position and aid growth • strong financial flexibility indicated
by a healthy cash liquidity of about ₹
5400 crore
 CFRA Project Report: Financial Analysis for Ultratech Cements

Detailed Analysis of
Ultratech Financial Reports

Indian Institute of Management Calcutta

 CFRA Project Report: Financial Analysis for Ultratech Cements

1 Introduction
1.1 Company Background
UltraTech Cement Ltd. is the largest manufacturer of grey cement, Ready Mix Concrete
(RMC) and white cement in India. The company has an installed capacity of 96.5 Million
Tonnes Per Annum (MTPA) of grey cement. UltraTech Cement has 19 integrated plants,
1 clinkerisation plant, 25 grinding units and 7 bulk terminals. Its operations span across
India, UAE, Bahrain, Bangladesh and Sri Lanka.
Businesses Involved:
UltraTech provides a range of products that cater to the various aspects of construction, from foundation to
finish. The company's subsidiaries are Dakshin Cements Limited, Harish Cements Limited, UltraTech Cement
Lanka (Pvt.) Ltd and UltraTech Cement Middle East Investments Limited.[2]
Company performance:
The cement sector saw an impressive pickup at over 7.5%, ending a 7 year down cycle attaining net revenues of
US$ 4.87 billion (` 31,411 crores) and EBITDA of US$ 1.04 billion (` 6,729 crores). Ultratech successfully
completed the acquisition of the 21.2 MTpa capacity cement plants of Jaiprakash Associates Limited enabling
entry into high growth markets. It has also commissioned a greenfield clinker capacity of 2.5 MTpa at Dhar, M.P.,
coupled with a cement grinding facility of 1.75 MTpa capacity commissioning the plant in less than 365 days has
set a global benchmark.

ACC Limited has 17 modern cement factories, more than 62 ready mixed concrete plants, sales
volume of 26.21 million tonnes and a network of over 10,000 dealers and a countrywide spread
of sales units. It currently has a net worth of 9365 Cr and EBITDA 1909 Cr (29% increase)

Ambuja Cement has a cement capacity of 29.65 million tonnes with five integrated cement
manufacturing plants and eight cement grinding units across the country. Cement production
increased by 8% from 21.2 million tonnes to 22.98 million tonnes. The domestic cement sales
volume increased from 21.1 million tonnes in 2016 to 22.95 million tonnes in 2017.

1.2 Industry Analysis Market Cap (₹

cr) 326335
Market Cap
(USD million) 50320.5
P/E 42.2
P/BV 3.8
Debt/Equity 0.4
ROA (%) 5.8
ROE (%) 9.0
EV/Sales 3.4
EV/EBITDA 16.8

Cement industry grew ~6% in the year 2017 as against 5.1% in the previous year. The largest share of demand
came from the housing sector (~66%), followed by the infrastructure (~18%) and commercial (~16%) sectors.
The total capacity of the cement industry in India is ~465 million tonnes (MT)[4] making it the 2nd largest producer
in the world and is estimated to touch 550 MT by 2020[3] The industry is producing ~301 MT for domestic demand
and ~4 MT for its export requirement. Cement sector’s growth in 2017 was largely on account of support from
the Government led infrastructure initiatives along with elimination of local taxes and flexible inter-state
movement of cement due to implementation of GST. With expected pick-up in affordable and rural housing
segments, demand is likely to grow by 4-5% in FY 2019. A large number of foreign players are also expected to
enter the cement sector, owing to the profit margins and steady demand.[3] However, capacity overhang and
moderate demand will continue to keep utilisation levels between 60 and 65% over the medium term.

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 CFRA Project Report: Financial Analysis for Ultratech Cements

2 Abridged Financial Statements

Abridged Financial statements for last two years for each of the three firms in our analysis, are shown below:
Ultratech Cement Ambuja Cement ACC
PARTICULARS
2017 2016 2017 2016 2017 2016
BALANCE SHEET
EQUITY AND LIABILITIES
Shareholders' Funds 25923.02 23941.01 19973.21 19356.87 9365.46 8661.44
1. Non Current Liabilities 17407.71 7281.68 526.65 564.21 683.39 689.82
2. Current Liabilities 11042.27 8058.4 4117.33 3431.69 4840 4086.21
Total Liabilities 28449.98 15340.08 4,643.98 3,995.90 5523.39 4776.03
TOTAL 54373 39281.09 24617.19 23352.77 14888.85 13437.47

ASSETS
1. Non-Current Assets 43787.39 26806.04 19,124.96 19,139.08 9271.04 9404.97
2. Current Assets 10585.61 12468.35 5492.23 4213.63 5604.73 4032.5
TOTAL 54373 39274.39 24,617.19 23,352.77 14,875.77 13,437.47

INCOME STATEMENT
REVENUE
Revenue from operations 30683.93 27162.42 11,214.87 10,500.84 14200.19 12523.39
Cost of Goods Sold 20578.17 18335.14 7293.62 7204.34 9688.75 8554.84
Gross Profit 10106.84 8827.28 3,921.25 3,296.50 4511.44 3968.55
Operating expense 5367.89 4633.21 2261.37 1999.21 3113.66 2969.11
Operating income 4738.95 4194.07 1,659.88 1,297.29 1397.78 999.44
Other income 594.7 659.95 359.09 510.21 131.65 128.34
Other expense 619.23 492.99 292.67 453.79 128.77 148.82
Exceptional Items 226.28 13.69 0.00 0.00 0 -42.81
PBIT 4488.14 4347.34 1,726.30 1,353.71 1400.66 936.15
Interest expenses 1186.3 571.39 107.19 74.24 102.3 82.63
PBT 3301.84 3775.95 1,619.11 1,279.47 1,298.36 853.52
Tax Expenses 1070.56 1148.23 369.55 347.23 382.91 206.47
PAT 2231.28 2627.72 1,249.56 932.24 915.45 647.05

CASH FLOW STATEMENT

Cash received from customers 29828.7 27285.4 10989.96 10556.73 14,068.09 12,471.64
Cash Paid to suppliers 20275.52 17806.2 6612.53 7180.9 9,243.78 7,968.64
Cash Paid for Operating
Activities 5096.17 4025.69 2213.25 1641.72 3,051.96 2,850.42
Cash Paid to Taxes 839.07 730.66 310.07 318.71 217.68 271.71
Net cash from operating 3617.68 4722.87 1,854.13 1,415.83 1,554.67 1,380.87
Net cash used in investing 1891.89 -2365.12 -213.59 -3469.06 -384.58 -539.1
Net cash used in financing -5496.54 -2382.64 -748.66 -683.26 -422.1 -421.17
Adjustments on
Amalgamation / Merger /
Demerger / Others 23.00 0.47 0.88 0
Net change in C & CE 13.03 -24.89 914.88 -2,736.02 748.87 420.6
Opening C & CE 50.88 75.77 2,395.76 5,131.78 1777.78 1389.04
Closing C & CE 63.91 50.88 3,310.64 2,395.76 2526.74 1908.89
Table 1. Abridged Financial statements of Ultratech, ACC and Ambuja Cements for 2017-18 and 2016-17

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 CFRA Project Report: Financial Analysis for Ultratech Cements

3 Key Accounting Policies of the Firm

All assets are reported at historical costs in the financial report except a few exceptions - Derivative Financial
Instruments, assets and liabilities acquired under Business Combination are measured at fair value. Assets held for
disposal are measured at lower of carrying amount and fair value less costs to sell while Employee’s Defined
Benefit Plan is as per actuarial valuation.

The operating cycle stated as per the company is 12 months and the same is used to classify assets and
liabilities as current and non-current on the balance sheet. Additionally, assets and liabilities held primarily for
trading are classified as current. Cash and cash equivalents are current assets unless it is restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting period.

The initial cost of PPE reported includes its purchase price, import duties, non-refundable purchase taxes, direct
costs of bringing asset to working condition and location, borrowing costs, decommissioning costs, subtracting
accumulated depreciation impairment losses. Repairs, maintenance and other expenditure incurred after the PPE
is put into operation is directly charged into income statement, along with gain or loss on disposal of PPE. If
different components of PPE have different useful lives, they are accounted for separately.

The discounted cash flow model has been used to value intangible assets, and acquired tangible assets.
Research expenditure is expensed out when incurred while development is capitalised if such expenditure only if
asset creation results out of it.

Intangible assets with indefinite useful lives/not yet available for use are tested for impairment at least
annually. Recoverable amount is the higher of fair value less costs of disposal and value in use which is determined
by estimating discounted future cash flows using a pre-tax discount rate (which reflects market assessment and
risk of asset). If the recoverable amount is less than carrying amount, then value is reduced to recoverable amount,
with an impairment loss recognised in Statement of Profit and Loss. In case of reversal, the value is increased, but
only up till the carrying amount that would have been determined without impairment loss.

Raw materials, fuel, stores & spare parts, packing materials, WIP, finished goods, stock-in-trade and trial run
inventories are valued at lower of cost and net realisable value (NRV) if finished products, in which they will be
used, are to be sold at or above cost. Cost is determined on weighted average basis (includes expenditure incurred
for acquisition like purchase price, import duties, taxes).

Equity share-based payments to employees are measured at fair value of the employee stock options at
grant date and are amortised over vesting period. Revisions of estimates are recognised in the Statement of Profit
and Loss such that cumulative expense reflects the revised estimate and adjustment in equity-settled employee
benefits reserve.

Government grants, related to assets, are recognised in the Statement of Profit and Loss if there is
reasonable assurance that they will be received. All employee benefit programmes are accounted for as per the
Indian GAAP standards. The cost of equity-settled transactions with employees is measured using Black-Scholes
model to determine the fair value of the liability incurred on the grant date. For foreign currency transactions, at
the end of each reporting period, they are translated at the rates prevailing at that date, while assets are reported
at the rate when fair-value was determined.

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 CFRA Project Report: Financial Analysis for Ultratech Cements

4 Interpretation of Standalone Financial Statements

4.1 Analysis of Balance Sheet

Fig. 1 Change in Assets and Liabilities

60000 54373
The reason for an increase in the
assets in 2018 is due to acquisitions of
50000 JAL and JCCL which resulted in a ₹
39281
40000 35214
37852 16,689 Cr addition to assets. This is
also serves as the explanation for the
30000 increase in Non-current liabilities,
20000
17407 where Ultratech realized ₹ 11,858 Cr.
8786
11209
8058 11042 of liabilities from its acquisitions
10000 7570 5906 7821 alone. The total liabilities however
0
reduced as Ultratech repaid debts
2015 2016 2017 2018 worth ₹ +800 Cr.
Assets Current Liabilities Non Current Liabilities

A significant contribution to the increase in assets from acquisitions can be observed in the Non-
Current Assets From the Financial statement notes, we observe that a majority of the non-current assets lie as
‘Plant and Equipment’ at ₹ 26,700 Crores. The next largest contribution is seen in the form of ‘Freehold land’ and
‘Buildings’ at ₹ 9500 Crores. Ultratech also spent ₹ 1900 Cr on capital expenditures for project in Manavar, Bara,
Chhattisgarh.

4.2 Analysis of Profit and Loss Statement

Fig. 2 Analysis of Profit and Loss Statement

35000
30000
25000
20000
15000
10000
5000
0
Operating COGS Gross Profits Operating Operating PBIT Interest PBT Net Profit
Revenue Expense Income Expense

2018 2017 2016 2015

The increase in sales for 2018 is attributed to a higher sales volume and improvement in cement prices. Other
income saw a gain of 9% mainly due to an income of ₹ 304 Cr through government grants. The decrease in Net
profit for the year is mainly due to the 2X increase in Interest Cost due to debt acquired from the acquisition and
an unexpected expense amounting to ₹ 226 crores was seen due to stamp duty on assets acquired for JAL and
JCCL.

The total Revenue for Ultratech from operations contributes ₹ 30600 Crore out of which around 2% is realized
via Accounts Receivable. Hence we can see a healthy cash influx through the revenue.

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 CFRA Project Report: Financial Analysis for Ultratech Cements

Significant contributors to expenses are Power and Fuel, Freight and Forwarding Costs, and Cost of Materials
consumed, the breakup of which can be better visualized through fig. 2. An interesting observation shows the
Freight costs being double that of the Cost of Materials consumed.

Fig. 3 Expenses

COGS
4,318.12 3,978.36
814.37
893.83 Stock In trade

Employee Benefits
1,706.24 Finance Costs
1,186.30 Dep. & Amortization Costs

7,281.63 1,763.56 Power & Fuel

Freight & Forwarding

Excise Duty
5,959.50
Others

4.3 Analysis of Standalone Cash Flow Statements

Fig. 4 YoY Cash Flow Analysis The large drain on cash flow from
6000 financing activities is offset by the
gain in Investing activities. Thus, we
4000
2016 see an overall cash flow increase by
2000 12 Cr. which is a positive sign as
-63 -25 12 compared to 2017. However, the
Cash in ₹ Cr.

0 sustainability of this cash flow for

-2000 2019 is questionable as the funds
raised from financing activities will
-4000 bear burden in the form of interest
-6000
especially without the cash cushion
Net Cash from Operating Activities from investing activities. An In-
-8000 Net Cash Used in Financing depth analysis of each statement is
Year
Net Cash Used in Investing Activities provided below.
Net Increase/Decrease in C&CE

Analysis of Operating Cash Flow:

1. A dip can be observed in operating cash flow in 2018 mainly due to a large retention in inventories because
of inefficient sales projections. The Increase in inventories for 2018 was ₹ 876.5 Cr as compared to ₹ -
52.62 Cr. in 2017. Other reasons can be attributed to increases in Energy costs, Input material costs &s
7% increase in diesel for freight expenses.
2. Increase in trade receivables by ₹ 427.7 Cr. resulted in lesser cash flow from customers in 2018

Analysis of Financing Cash Flow:

1. The main reason we see a large fall in cash flow from financing is because of the repayment of borrowings
of JAL and JCCL worth ₹ 10,686 Cr. Repayment of Non-current borrowings also resulted in an decrease
of ₹ 6160 Cr.

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 CFRA Project Report: Financial Analysis for Ultratech Cements

2. Proceeds worth ₹ 15,772 Cr. was used for the acquisition of JAL and JCCL. This was a strategic move by
the company to ensure that they avoid a large difference in financing cash flow. This effectively avoided a
large decrease in cash and cash equivalents for 2018.

Cash Flow From Operation Direct Method (in Cr.)

Cash Collected from Customers 29828.7
Less Paid to Suppliers 20275.52
Change in Inventory 876.5
Cost of Materials 19876.8
increase in A/P -477.78
Less Operating Expenses 5096.17
Other Operating Expenses 3428.93
employee benefits 1667.24
Cash Flow From Operation Before 4457.01
Tax
Less Income Tax Paid 839.07
Cash flow from operations 3617.94
Table 2. Direct Cash Flow from Operating Activities

Analysis of Investing Activities

1. Ultratech raised ₹ 5574 Cr. and ₹ 2031 Cr. by sale of investments and redemption in bank deposits in
order to generate cash required for the acquisition.
2. This is the only year we see that Ultratech has had a positive cash flow from investing activities.

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 CFRA Project Report: Financial Analysis for Ultratech Cements

5 Trend and Common Size Analysis

5.1 Vertical Analysis
Table 3 shows the vertical analysis of Ultratech for the years 2017-18 and 2016-17.

UltraTech Vertical Analysis Pvt. Ltd.

Balance Sheet
Particulars 2017-18 2016-17
Total Equity 47.68 60.95
Total Non Current Liabilities 32.02 18.54
Total Current Liabilities 20.31 20.51
Total Equity and Liabilities 100 100

Non Current Assets 80.53 68.24

Current Assets 19.47 31.74
Total Assets 100 100
Income Statement
Net Sales 100 100
Less COGS 67.06 67.50
Gross Profit 32.94 32.50
Less Operating Expenses 17.49 17.06
Net Operating Income 15.44 15.44
Non Operating Income 1.94 2.43
Other Expenses 2.02 1.81
Exceptional Items 0.74 0.05
EBIT 14.63 16.00
Less Finance Cost 3.87 2.10
EBT 10.76 13.90
Less: Tax Expense 3.49 4.23
PAT 7.27 9.67
Basic EPS 0.28 0.34
Table 3. Vertical Analysis

Vertical Analysis of Balance Sheet:

• The company funded its acquisitions by long term liabilities and that has reflected as contribution of long
term liabilities have increased from 18.54% to 32.02%
• With the acquisitions, the non-current assets have gone up from 68.24 to 80.53% while the contribution
of current assets have decreased.

Vertical Analysis of Income Statement:

• COGS has stayed almost constant with it being 67% of the net sales of the company. Operating Expenses
also have stayed constant at 17%.
• The exceptional items have grown by 16 times but their contribution is still negligible with only 0.74% up
from 0.05%.
• There has been increase in finance costs and other expenses, hence EBT as percentage of net sales has
decreased from 13.90% to 10.76%

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 CFRA Project Report: Financial Analysis for Ultratech Cements

• PAT (profit as tax) have decreased to 7.27% from 9.67% on account of increase in tax and interest
expenses.

5.2 Horizontal Analysis

Table 4 shows the horizontal analysis of Ultratech for the years 2017-18 and 2016-17.

UltraTech Horizontal Analysis Pvt Ltd Balance Sheet Horizontal Analysis:

2016-
Particulars 2017-18 Current Assets ratio fell (₹ 1900 Cr. decrease)
17 because of a redemption in Investments in
Non Current Assets 163.35 100 Mutual Funds and Cash Balance from Banks.
Current Assets 84.90 100 Non-Current assets shows a major spike because
Total Assets 138.42 100 of the increase in PPE by ₹ 11320 Cr. from
acquired assets.
Income Statement
Net Sales 112.96 100 Income Statement
Less COGS 112.23 100 • Net sales have increased by 12.96% and COGS
has increased by 12.23% as a result of which gross
Gross Profit 114.50 100 profit has increased by 14.5%
Less Operating Expenses 115.86 100 • Operating Expenses and other expenses both
increased by 16% and 25% respectively, that has
Net Operating Income 112.99 100 reflected on the EBIT which increased only by 3%
Non Operating Income 90.11 100 • Even though exceptional items have increased by
Other Expenses 125.61 100 16 times, it had a negligible impact on the
company’s income statement as it was miniscule in
Exceptional Items 1652.89 100 the previous year.
EBIT 103.24 100 • Finance costs have increased by 107%, this has
dragged the EBT down and EBT is 13% lower
Less Finance Cost 207.62 100 than the previous fiscal year.
EBT 87.44 100 • Even though tax expenses have decreased by 7%,
Less: Tax Expense 93.24 100 the effects of increase in other expenses have
resulted in 16% lower PAT compared to previous
PAT 84.91 100 years.
Table 4. Horizontal Analysis

6 Financial Ratio Analysis

Table 5 and 6 shows the ratio analysis for Ultratech cement over 2 years
Profitability Ratios 2018 2017 % change Liquidity/ Solvency
1 Return on Asset 0.05 0.07 -29.67 ratios 2018 2017 % change
2 Return on Invested Capital 0.43 0.53 -18.18 1 Current ratio 0.95 1.55 -38.32
3 Return on Equity 0.09 0.11 -21.86 2 Quick Ratio 0.67 1.27 -47.06
4 Profit Margin 0.08 0.11 -31.71 3 Debt to asset ratio 0.52 0.39 33.98
Efficiency / Turnover ratios % change 4 Debt to equity ratio 1.10 0.64 71.28
1 Asset turnover 0.63 0.61 2.98 5 Times interest earned 3.78 7.61 -50.27
2 Working Capital Turnover 14.99 16.55 -9.42
3 Inventory turnover 7.73 8.15 -5.23 Market Related ratios % change
4 Days in inventory 47.24 44.77 5.52 1 P-E ratio 50.73 37.93 33.74
5 A/C receivable turnover 19.64 17.55 11.89 2 Dividend yield 0.00 0.00 -7.53
6 Receivable days 18.59 20.80 -10.63 3 Dividend payout 0.13 0.10 23.68
7 Operating Cycle 65.82 65.56 0.40
8 Days payable 35.98 32.76 9.83
9 Cash cycle 29.84 32.80 -9.02

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Profitability Ratios
There has been a decline in all the profitability ratios. The company has acquired many entities in the year. As a
result, their assets have increased but liabilities have increased disproportionality and that is reflected on the
balance sheet. The sales and profit haven’t been as good and hence the ratios have decreased by substantial
amounts.
• Return on Asset (ROA) has decreased by 29.67% on account of disproportionate increase in assets vis a
vis sales.
• Return on Invested Capital has decreased by 18.18 % due to large investments in the greenfield as well as
brownfield plants.
• Return on Equity has decreased by 21.86% on account of lesser margins and decrease in profit.
• Profit Margin has decreased by 31.71% on account of decrease in profit and high increase in operating
expenses.

Efficiency/Turnover Analysis
The company has achieved marginal decrease in its operational efficiency. There have been substantial increase in
the COGS. Also due to acquisition, assets and inventories from newly acquired units have been added and their
effect has shown in the various turnover ratios. Without taking into account the newly acquired less efficient
plants, it can be said the capacity utilisation has been good.
• There has been 3% increase in asset turnover despite substantial increase in assets on account of higher
increase in COGS.
• The working capital turnover has decreased by 9.42% due to increase in working capital.
• Inventory turnover has decreased by 5.23% indicating decreased production efficiency.
• Account receivable days have increased by 10.63%, indicating difficulties in revenue collection from the
various customer accounts.
• Total operating cycle has increased marginally by 2% indicating inefficient revenue collection machinery.

Liquidity/Solvency Ratios
The company has suffered a lot in the past year in the solvency and liquidity front. It has acquired loss making
entities and as a result, the liabilities have increased a lot. The total assets are even less than total liabilities due to
the increase in long term borrowings to fund the acquisitions.
• The current ratio has decreased by 38.32%, quick ratio has decreased by 47%. This has happened as a
result of increase in non-current liabilities.
• Debt to asset ratio has increased by 34% while debt to equity ratio has increased by 71.3%. This can be
explained by high increase in debts undertaken by the company.
• Times Interest Earned decreased by 57.9%, so company has improved its debt paying capacity despite its
increase in debts.

Dupont Analysis

By Dupont Analysis, we can analyse the break-up and

Values %Contribution contributions of net income, asset turnover, and
Profit Margin 0.07 2.94 financial leverage ratios on the return on equity for the
Asset Turnover 0.62 24.29 company. The asset turnover is lower than industry
2017
FLM 1.87 72.76 average, pointing at inefficient utilisation of assets,
ROE 0.0895 100 while the profit margin is close the industry
Profit Margin 0.11 4.61 benchmark. However, the ROE is near the industry
Asset Turnover 0.60 25.25 average due to the large level financial leverage
2016
FLM 1.69 70.12 employed by the firm, which is the largest driver of
the ROE for the firm. The financial leverage has
ROE 0.1145 100
increased over the last financial year due to debt-
Table 6. Dupont Analysis fuelled acquisitions, increasing its contribution and
importance as a driver of the ROE of the company

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 CFRA Project Report: Financial Analysis for Ultratech Cements

7 Comparative Analysis
Table 7 gives a detailed ratio analysis of Ultratech, ACC and Ambuja followed by an analysis of the ratios in
table 8.

Companies Assessed Ambuja Cement ACC Cement Ultratech Cement

Key Ratios 2018 2017 %change 2018 2017 %change 2018 2017 %change
Profitability Ratios
1 Return on Asset 0.052 0.050 4.825 0.065 0.049 31.198 0.048 0.068 -29.668
Return on
2 Invested Capital 0.340 0.401 -15.056 0.730 0.634 15.185 0.132 0.173 -23.791
3 Return on Equity 0.064 0.063 1.096 0.101 0.075 34.256 0.089 0.115 -21.860
4 Profit Margin 0.111 0.089 25.505 0.071 0.060 18.010 0.076 0.111 -31.706
Efficiency / Turnover ratios
1 Asset turnover 0.468 0.560 -16.478 0.911 0.820 11.175 0.627 0.609 2.984
2 WC Turnover 10.399 5.117 103.236 31.144 -55.813 -155.799 14.990 16.549 -9.422
3 Inventory turnover 7.330 7.861 -6.750 6.689 5.807 15.188 1.494 1.540 -3.023
4 Days in inventory 49.795 46.433 7.239 54.569 62.857 -13.186 244.343 236.957 3.117
A/C receivable
5 turnover 31.872 23.862 33.567 21.438 21.112 1.544 19.638 17.551 11.890
6 Receivable days 11.452 15.296 -25.131 17.026 17.289 -1.520 18.586 20.796 -10.627
7 Operating Cycle 61.247 61.729 -0.782 71.595 80.146 -10.669 262.929 257.753 2.008
8 Days payable 46.145 42.797 7.824 63.701 55.528 14.720 186.123 173.419 7.326
9 Cash cycle 15.101 18.932 -20.236 7.894 24.619 -67.934 76.807 84.335 -8.926
Liquidity/ Solvency ratios
1 Current ratio 1.334 1.228 8.637 1.161 1.013 14.568 0.955 1.548 -38.323
2 Quick Ratio 1.071 0.944 13.391 0.866 0.703 23.094 0.672 1.269 -47.063
3 Debt to asset ratio 0.189 0.171 10.249 0.371 0.343 8.212 0.523 0.391 33.985
Debt to equity
4 ratio 0.233 0.206 12.632 0.590 0.522 13.056 1.097 0.641 71.282
Times interest
5 earned 16.105 18.100 -11.019 32.371 45.493 -28.845 2.784 6.613 -57.900
Market Related ratios
1 P-E ratio 38.792 46.908 -17.303 31.969 50.261 -36.395 11.613 9.108 27.512
2 Dividend yield(%) 0.015 0.013 15.925 0.010 0.010 -1.898 0.011 0.011 -3.008
Dividend
3 payout(%) 0.572 0.597 -4.134 0.308 0.494 -37.602 0.129 0.104 23.676
Dupont Analysis
Return on Equity 0.064 0.101 0.089
Table 7. Ratio Analysis of Ultratech, ACC and Ambuja Cements

A detailed analysis of all the ratios are shown in Table 8. The ratios have been analysed according to their
broad classifications.
Key Ratios Ultratech w.r.t ACC
ROE, ROA and Profit margin of the
companies are similar, however, there is a
large % increase in profitability for ACC as
Profitability
compared to a large decrease for Ultratech.
This is indicative of the low profitability due
to the major acquisitions undertaken by
Ultratech w.r.t Ambuja
ROA is similar, ROIC is better for Ambuja,
while ROE is better for Ultratech. This may
be due to the large share of equity and low
share of liability in Ambuja’s balance sheet.
The profit margin is greater in 2018 for

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 CFRA Project Report: Financial Analysis for Ultratech Cements

Ultratech. Also, return on Invested Capital
(ROIC) is 73% for ACC which is much
higher that 13% of that of Ultratech.
Asset turnover and inventory turnover and
in turn operating cycle are much higher for
ACC. This is indicative of sub-optimal
utilization of assets and inventory by
Efficiency/Turnover
Ultratech. However, Ultratech is able to
maintain an industry standard cash cycle due
to large payables’ days.
Ambuja largely due to low initial profitability
of the acquisitions undertaken by Ultratech.
Asset turnover and working capital turnover
is lower indicating sub-optimal asset
utilization by Ambuja. However, their
inventory and receivable turnovers are
better. Also, Ultratech is able to maintain an
industry standard cash cycle due to large
payables’ days.

All the ratios were similar in the 2016-17
fiscal year, but due to the large debt taken by
Liquidity Ratios
company for acquisitions, the solvency of
the company declined sharply.
The P-E ratio is much higher for ACC
indicating undervaluation of Ultratech’s
Market related ratio equity. Dividend payout ratio is higher
indicating more retained earnings are
invested by Ultratech to aid its growth.
Table 8. Analysis on Ratios
All the ratios were similar in the 2016-17
fiscal year, but due to the large debt taken by
company for acquisitions, the solvency of
the company declined sharply.
The P-E ratio is much higher for Ambuja
indicating undervaluation of Ultratech’s
equity. Dividend payout ratio is higher
indicating more retained earnings are
invested by Ultratech to aid its growth.

8 Financial Performance Analysis

The key highlight for Ultratech in 2017 was the successful completion of the acquisition of 21.2 mtpa capacity
from JAL and JCCL. An addition of an extra 4 mtpa was realized through 3 different greenfield projects across
India. This placed Ultratech as No. 4 globally in terms of cement capacity.

Ultratech saw a 12.4% growth in net sales to ₹ 31,278 Crores as compared to the 7.5% growth in the
cement industry in India. The company also saw a 9% increase in other income because of the Industrial
Promotion Schemes under various states. The PBIDT for the year grew 15% to ₹ 6500 crores, however the net
profits fell due to an increase in operating costs.

The operating costs increased to ₹ 25,925 crores because of an increase in energy costs by 23%, increase
In input material costs, and an increase in freight and forwarding costs due to 7% diesel hikes. Significant increases
in costs also resulted from Depreciation and Finance costs due to the acquisition of JAL and JCCL.

The net profit took a hit by 15% and fell to ₹ 2231 crores from ₹ 2638 crores. The company saw a cash
inflow from operations as a result of higher revenues and increase in non-operating cash due to higher interest
income and sale of mutual funds. Cash drains were observed from repayment of ₹ 880 crore towards long term
borrowings, costs of ₹ 1900 crores towards capital expenditures and a dividend distribution worth ₹ 347 crores.

Ultratech is the dominant market leader in the cement industry in India. It has the highest sales, net profit,
total assets and market cap as compared to its competitors. For the year ended 2018, Ultratech had a YoY decrease
in net profit by 15% while its competitors grew by 35% on average in terms of net profit. This however is not a
reason for worry as Ultratech is predicted to grow in 2019 due to its increase in production capacity. Ultratech has
also taken on the largest amount of debt for 2017, however the debt to EBITDA is likely to trend to less than 2.5
times by march 2020.

On the downside Ultratech had a lower-than-expected ramp-up in cash accrual due to non-sustenance of
current performance. They also have a higher-than-expected debt because of sizeable acquisitions or capital
expenditure, or delay in reducing debt through surplus cash. However, we believe UltraTech will continue to
benefit from its healthy market position, geographically diverse presence in India and high financial flexibility.

The following provides an overview of Ultratech’s strengths and weaknesses

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 CFRA Project Report: Financial Analysis for Ultratech Cements

Strengths
• Largest Cement company in India in terms of sales, net profit, total assets and market cap.
• Highest cement production capacity in India and NO 4 in the world at 91.5 mtpa.
• Days account payable is high due to extended credit period granted by their creditors due to their long
standing trust and credibility.
• Ultratech have a great reputation in terms of credit repayment CRISIL AAA/FAAA/Stable/CRISIL
A1+.
• Ultratech has developed a superior operating efficiency driven by strong consumption norms, captive
power capabilities and efficient logistics through a pan India presence.
• Ultratech has healthy cash liquidity of about ₹ 5400 crore which implies strong financial flexibility

Weaknesses
1. High operating cycle due to inefficient asset and inventory utilisation partly due to acquisitions of badly-
managed and distressed units
2. High exposure to industry related risks for input costs, realisations and the cement industry’s innate
cyclicality
3. Relatively lower growth in net profits over the past 4 years as compared its competitors may be a reason
for worry as it could hint towards a growth stagnation.
4. Analysts ascertain that Ultratech may have over projected cement sales for the upcoming years. This may
result in a heavy underutilization of the newly acquired capacity.

9 References
I. https://www.ultratechcement.com/about-ultratech-cement-ltd
II. https://www.ultratechcement.com/businesses
III. https://www.capitaline.com/SiteFrame.aspx?id=1
IV. https://www.ultratechcement.com/ultratech-financial-reports
V. http://www.acclimited.com/investor-relations/financial-annual-results
VI. http://www.ambujacement.com/investors/annual-reports

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